EVEN IN THE run-up to a tight general election, the biggest political story of the season is the growing likelihood of a “no” vote in the French referendum on the European constitution. While the British election could conceivably change our government for the rest of the decade or, more likely, force Tony Blair into retirement a few years ahead of plan, the French referendum could transform the political and economic prospects for the whole of Europe, including Britain, for an entire generation.

The interesting question is whether a “no” vote on May 29 would be a catastrophic setback for the European Union or a big advance. While almost all politicians see a “no” vote in France as disaster for the “European project”, the opposite conclusion is more plausible. In trying to establish this, I will not waste time on all the petty bureaucratic arguments made for voting “yes”: the necessity of new voting rules, and so on. After all, Brussels seems to have no problem in generating ever-more regulations, even under its present “unworkable” structure, so one dreads to imagine the output of a more “efficient” EU. More importantly, all the important administrative anomalies could easily be resolved in a five-page amendment to the existing EU treaties, instead of the 600-page blueprint for an omnipotent centralised legal system and government presented by the Constitutional Convention under the leadership of Valéry Giscard d’Estaing.

What, then, is the real issue before the voters of France? A few days ago I heard this question beautifully answered for a British audience by Charles Gave, a prominent French economist who also happens to be my business partner: “Why will the French vote “no”? Because this referendum gives them the chance of a lifetime to vote simultaneously against the two politicians they have hated most for the past 30 years: Chirac and Giscard. To understand what the average Frenchman thinks of these two defunct septuagenarians claiming to speak for the nation, imagine how people in Britain would feel if they turned on the TV news and found Harold Wilson still arguing with Ted Heath.”

On reflection, this is not just a joke. The French referendum has been grandly described as a choice between the past and the future. But the real choice is exactly opposite to the one articulated by campaigners on both sides. The alternatives offered to the people of France are not between the idealistic European multiculturalism of the 21st century and the xenophobic nationalism of the 19th. Rather they face a choice between two approaches: on one hand the liberal ideology of free markets and small governments that seems to be sweeping the world after its relaunch in Britain and America in the 1980s. The alternative is the 1970s belief that a centralised, protectionist and bureaucratically managed state could gradually be extended to the whole of Europe, preserving and enhancing the traditions of Gaullism in its glory days, when Chirac and Giscard were rising to power.

If the French vote “no”, many of them will probably be trying to protect their country from the incursions of Anglo-Saxon economic liberalism. And the chattering classes will doubtless conclude that the failure of the constitution is a tragic step back to the dark days of racism, nationalism and protectionism. But whatever the intention of some voters, the consequence of a “no” vote may well be to accelerate both economic and political liberalisation in France and across Europe.

Why would the failure of the EU constitution advance liberalisation? First because it would be a wake-up call for the politicians and officials who have so mismanaged the European economy since the mid-1990s that France, Germany and Italy, which used to be among the world’s most prosperous and technologically advanced countries, have not just fallen behind America, Japan and Britain but now see their jobs and leading industries threatened with extinction by South Korea, Taiwan and even China. Without faster economic growth, liberal market reforms are almost impossible to implement in consensual societies such as those of continental Europe — and faster growth could well be the consequence of a French “no”.

A “no” vote would be such a shock to Europe’s governing elites that the European Central Bank may well recognise that the only alternative to lower interest rates and a weaker euro will be the complete collapse of the single-currency project. The national governments and the European Commission will certainly abandon all efforts to patch up their deflationary Stability and Growth Pact — and instead will cut taxes in a dash for growth. But why do I believe that European governments will cut taxes, rather than increasing government spending and tightening protectionist regulations?

This brings me to the second and more profound implication of a French “no”. The collapse of the constitution would not just end Europe’s premature journey to single statehood. It would also dispel the pernicious illusion of French or European “exceptionalism” which this journey inspired: the idea that France or Europe has a “model” of social development which somehow exempts it from the laws of capitalist economics that apply to the rest of the world. Europe can make different choices on social services and welfare from America, but these choices can be supported only by a growing economy. The laws of the market — that people respond to incentives, that overvalued currencies destroy employment, that bureaucracy stifles enterprise — cannot be repealed by European idealism or political will.

A French “no” will force the people of Europe and the governing elites to face the fact that their living standards, cultures and influence in the world can be preserved only by improving economic performance, not by integrating, harmonising, enlarging or writing constitutions. Denied the illusions of “exceptionalism” and “ever-closer union”, Europe may have to think seriously about economic reform.

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